Big ETF Trends for 2025: Single stocks, sectors and asset flows!

You're watching ETF Guide. I'm Ronda Leege. Great to see you again, and if you're here for the first time, welcome aboard. Be sure to hit that subscribe button. We've got a lot of brand new original series programs that are just beginning a new season for 2025, from ETF battles to First Look ETF and shifting energy.

Be sure to hit that subscribe button and also turn on notifications so that when we drop those new episodes, you'll be the first to know about it. Let's take a look at the ETF Marketplace for 2025 as it begins to take shape. We've got Mike Akins with ETF Action joining us to give us some perspective on what he sees in the ETF Marketplace. Mike, great to see you.

Great to be here, Ron, excited to talk about the ETF space. It's ever changing, and it was a historical year on many fronts in 2024. We saw a lot of big milestones. Of course, we saw the first group of cryptocurrency and Bitcoin-linked spot price Bitcoin-linked ETFs, so that was certainly a turning point for the ETF industry and certainly sets a table for more to come.

I want to start out, though, talking about industry sectors. As you know, Mike, sector ETFs are one of the biggest and maybe most popular categories within the ETF Marketplace, and we're starting to already see some sector rotation within the S&P 500 Industry Group. So tell us what you're seeing.

What's great about the ETF market as a whole is it's gotten so large and so mature that it really can be used as a guide to what's happening within the markets across almost any sector, region, country. Sectors being one of the oldest, I just went into our equity sector and Industry dashboard, which is completely free at ETF action.com, and I'll just kind of use this as a guide.

As we can see here, the sector ETF market is $747 billion, with technology broken out. What's interesting, I think, is if you open up the sector Marketplace and look at the breakdown, what you'll find is that the assets actually tie out quite nicely to the S&P 500. So even though these are designed to get allocations directly into a particular sector to overweight, underrate, more of a tactical tool, what tends to happen is these sectors end up looking a lot like the total allocation of assets end up looking a lot like the S&P 500 or the broader market as a whole. As you can see, technology and financials are a little higher than normal right now, which we'll get into.

The key point to realize is that it's matured, and you can see that mature here. If I switch to our annual breakdown and look at since Inception, obviously you kind of had the growth in the mid 2000s of the ETF vehicle as itself, but it's kind of plateaued a little bit, and that plateauing really is a sense of that maturity and allows us to then understand ETF flows in terms of market sentiment. So what I would like to do is just focus in on ETF flows, but be flows grouped up by sector.

Before I do that, it's really important here to point out that flows, in my opinion, are generally indicative of past returns, not so much future returns. So a lot of folks like to focus, like there's a lot of money going into financials, I should get into financials, or a lot of what ain't going into technology, I should get in technology, and there's really no evidence from a return basis that those flows are predictive of future returns. In fact, if there is any evidence, one could argue that it's almost if you see too much flows go to one category, it's time to start playing contrarian if you just look at that from a return basis.

That being said, I'm going to set this on a different time frame. I set this to monthly just so we can see what's gone on over the last year in this space. So what I'm looking at right now is this chart is flows across the 11 GICS sectors, so all ETFs in those sectors and flows on a monthly basis over the last year. I'll just go through it, and what we'll see is Industrials have been all over the place. There's been no clear dominance. You've got several up months, several down months, but by and large, not a lot going on in this space, just pretty much neutral if you will, in terms of flow.

Looking at real estate, there's been a lot more down months recently. You can see the last three months net outflows in the real estate space. A big part of that, obviously, the macro story around rates, what's happening with mortgage rates, things of that nature, but also with commercial real estate and having to reset some of that base. You're seeing, I think, some of that play out in flows. Oh, by the way, we have a real estate ETF battle coming up with Tony Dong over at ETF Central, so for our audience, stay put and stay alert because we've got a REIT ETF battle coming.

Yes, indeed, it's a good one. So yeah, healthcare has probably been one of the biggest outflows across the board. You can see every month except for three over the past 12 months has been outflows, significant net outflows in that space. A lot going on there.

I was going to ask you what about defensive sectors. If you look at, for example, like Consumer Staples, utilities, I mean, how have some of these more defensive industry groups been doing? We know that offense, like communication services, as well as technology, if we can categorize those as offensive focus categories, have been doing well, but how have the defensive categories do? Do you think maybe those will start to maybe pick up and catch up to some of those offensive focus categories?

You usually need some sort of catalyst in terms of returns. If you look at your defensive sectors, they're significantly trailing your more cyclical and growth-oriented sectors in the market, and as such, you haven't seen a lot of flows come into these strategies. What you tend to see is when the market gets very volatile, or if we're having, we're in the midst of a big correction, people park assets into the more defensive sectors, and you'll start seeing those flows really increase.

As you can tell, looking at Consumer Staples, which I have highlighted right now, there hasn't been a whole lot of activity going at all. We've been on a bull market, so there's been a little bit of inflow, a little bit of outflow, but historically, what you'll see is these more defensive sectors will get heavy on the inflows when people are looking to stay invested, but maybe in a little less riskier of investment, and that's when you see those defensive sectors pick up in flows. Whereas this past year, it's been technology. Technology has been the big driver inflows in every month except for two, large net inflows across the board into technology.

Consumer communication services has been pretty flat, though I would say we're seeing in the last few months we're seeing a little bit more flows go into this space. Obviously, that space is dominated by a handful of names, Meta, Google, and so forth, but pretty quiet space. Really, the total story of the sector space over the past year, if we look at this in chart format, I can show it a little bit better.

Slide over here to flows. Look at the past year. There's been $24 billion that have come into sectors. Over 100% of that is technology. So basically, take technology out of it, and you've had net outflows across the other 10 sectors. I think that's really the story.

Now, financials has really come on strong, so see eight and a half billion dollars. A lot of folks are thinking that financials are going to get a reprieve with the new Trump Administration, a lot of breakdown some of those regulatory oversights, plus you're starting to see, well, you're seeing it this week in the bank earnings, but that net interest income is really starting to hit home with investors understanding the fact that we're in a new rate environment and that banks are actually earning money on all those deposits again. But this has been the only other outlier I would say in terms of positive recently. Everything else has been pretty neutral with the exception of that technology, and that's the big story, right?

Without technology ETFs, every other ETF in the aggregate grouped up would be negative outflows over the past year, all the other sectors you're saying combined. Yep, wow, so you can see that's an amazing stat. Wow, that's just incredible. Yep, it's really just been a dominating theme across our markets, not just for the past year, but really over the past year, it's been amplified.

Now, you had mentioned interest rates, and we know that bond yields have been rising despite the Fed's recent rate cuts. Bond ETFs, of course, are mostly down. We know that's inverse relationship, right? When bond yields go up, prices come down and vice versa. So what are you seeing with the bond ETFs trend-wise?

It's interesting. I mean, first and foremost, what we're seeing within the bond market is it's becoming the de facto place to go for investors, just like the equity ETFs did over the past decade. Folks are really leaning into it. So just the growth of the bond market, if you look at it first, we'll go to our asset class category page to illustrate this.

If I look at the chart on our asset classes and categories, it's going to provide a breakdown of the entire ETF market at the highest level. We classify ETFs, which is the asset class level, right? So first, take note, 77% equity ETFs, 17% fixed income. So still dominated by equity, but in terms of what does that look like over the since the Inception of ETFs, what you've seen over the past seven to 10 years is a continued adoption of fixed income ETFs becoming a bigger part of those overall allocations.

We can see that not only in AUM, but if we look at flows going back over the past 10 years, you keep seeing over the last five years, fixed income ETFs taking a bigger bite of the pie, and that's just a sense of maturity. Folks are realizing, hey, just like ETFs did to the equity market, making it more efficient, easier to trade, easier to allocate, the same thing is possible with the fixed income ETFs, and that's playing out now in terms of where is it going within the fixed income markets.

I head over to our fixed income ETF dashboard. Reminder, these are 100% free. You can do a lot more if you create an account, but if you're just looking to see and navigate the markets, these dashboards are just at ETF action.com, and you can play around with them completely for free and see some of these Trends. But first and foremost, we got that $1.8 trillion fixed income market. Most of it is in taxable ETFs, with about 137 billion in Municipal.

If we focus in on that taxable space and find is not surprisingly, the lion share is in that fixed income taxable core. I would point out the ultra short category at 255 billion. Think of this is like a cash substitute. This is everything less than one-year maturity, mostly dominated by government securities. It's an ultra short category, so you're really getting most of these strategies. You've got a mix of active and passive, but generally you're kind of benchmark is that three-month treasury, T-bill type return, and it's an area where you can park your cash when you're not sure where you want to allocate to.

But point being is there's a lot of different categories here, and I think maybe to your point, one of the things we can look at is if we look at returns over the past year, we're going to see converts, everything that's got the most equity-like characteristics, the highest correlation, the highest risk done the best, right? So convertibles, best performer, bank loans, preferred stocks. These are going to be your sectors of the your more higher risk sectors of the fixed income ETF space, and in return, we had a very bullish market last year, they're going to be your top performers.

If we go down to the bottom, what we're going to start seeing right is anything with long-term in it and anything with higher duration is going to have your worst performers, right? So despite the Fed starting to cut in the second half of last year, the markets took a different opinion on that, right? The Fed can kind of set that policy rate, but the markets can argue whether they agree or disagree, and what we've seen with the bare steepening in the market is that your longer term strategies and really dive right into those long terms and look at some of them from a return basis.

What you're going to see is ice shares 25 plus years, PCO 25 plus years, you got crushed in this space, right? If you were on the long into of the curve over the last year, it's been a tough ride. It's been even tougher if we've gone over a longer period, right? So let's just take a look at that longer duration.

One of these longer duration ETFs, we'll look at the Vanguard extended duration ETF, EDV. We'll pull it up the performance, and over the last three years, it's been a tough ride for sure. In 2022, a lot of people were expecting bonds to be a place of safety, and they weren't. Some of these places that you're mentioning were among the hardest hit, and so I think investors still have that on their mind, the ones at least that remember.

A lot of them have Amnesia and have forgotten already, but it certainly has, I think, brought some investors to light, and they've realized that, hey, there is duration risk when you're going extending that duration over the long, you know, 20 plus years. If we take this up, what we could do is we could just isolate our treasury ETFs. If I come in here and show you from a flows perspective, I think of the duration into the fixed income market a lot like the sectors and equities. You can really see that volatility of flows based on macro assumptions, those tactical moves.

So I'm going to do is I'm going to set up my dashboard here to be just fixed income, and I'm just going to go in just taxable. I'm also going to set a filter then at this point on just the government ETFs. So I want to look at the long and the short. I'm going to hit apply, and now what we can do, so I'll get rid of that composite, and we can see, okay, here's your government long, government short, right?

What we mean by long and short, by the way, for those watching, we're talking about maturities, long-term maturities and short-term maturities, not long as in long leveraged or short short leverage. Excellent point. Just purely talking about duration, long is going to be extended seven years plus out. I'm sorry, 10 years plus out. Intermediates typically thought of as 3 to 7, short is 1 to 3, and ultra short is under a year.

I'm just going to look at short and long. We're going to get rid of the ultra short because that can be thought of as a cash like it can be a little confusing. We'll just keep it to the allocators that are going short, short in the curve, long on the curve. Let's just take a look at what's happened over the past couple of years in this space.

I'm going to go into my charts here. I'm going to look at it by category. We can see right now 65% of those government ETFs are in long, 35% are in short, and if we slide down, I'm going to set this up quarterly to give us a little more representation. If we look at the flows, what you see is that people were anticipating rates coming down, and as a result, over the last year, last few years, a lot of money went to the long end of the curve, and that has proven to be not a great deal, right?

Then we see we're kind of rolling in. In December, there's kind of a little capitulation. We saw some of the largest outflows ever in the fourth quarter. I have this set up as quarterly flows right now. So in the fourth quarter, you saw a huge outflow, it's the first outflow over the last three years on a quarterly basis for the long end of the curve using just those treasury ETFs, and I think that's a little bit of a capitulation saying, you know what, we were trying to play the Fed. The Fed was telling us they were lowering rates, lowering rates, drive down interest rates, which would be positive for longer duration, but the market had something else in mind, and we've seen that bare steepening, and as a result, you're seeing a little bit of that capitulation and flows.

This would also just kind of be an example of, well, now that you're seeing outflows come out, now I might actually want to start dappling, right? Indicator said before, yeah, and that's just a little, you know, definitely not making that call, but just something to look at. If I break it down monthly, it even gets a little bit Wilder. So now I'm going to look at monthly flows, and what you've seen is there was just basically this big call on the long end of the curve, shorts a little bit more all over the place. We can see a lot of outflows, but on the long end of the curve, this is over the last three years.

You're pretty much looking at people getting longer and longer dated ETF Bond government treasury bond ETFs in their portfolios, and then a little bit of a capitulation, you know, what, we got it wrong, we got hurt, and we've seen November and December, two of the largest outflows, and I think that them, in fact, I'm pretty certain, minus what you saw during COVID, a little bit of the taper tantrum, you have two of your largest monthly out close in the history of this category in November and December of 2024.

Another contrarian indicator for you Traders paying attention and trading that way, take note. One last thing, Mike, before you take off, let's talk about single stock ETFs just quickly. As you know, this is a relatively new ETF category that has seen strong investor interest. We've see that that in the trading volume, it's also reflected in the asset assets under management growth. What else are you seeing here in this particular market?

Part of what we're seeing is the ETFification of the market in general, like if I can put it in ETF, I'm going to. I could get into that about the crypto world for a while if I wanted to, but sticking to single stocks, it's been pretty interesting phenomenon. Give me one second, I'll set up my picture here.

While you're doing that, I'm just going to mention that when single stock ETFs first came out, I think we saw the first iteration, gosh, was it 2023? I think it was either 2023 or 2022, but the years are blending together. When this first came out, I was, I had some, I had some doubts, I think, like a lot of people, like what are they doing? How are people going to use these products? What is going to be the reaction of the marketplace? Is there going to be interest? Is there going to be demand for this, or is that interest going to be just limited to, let's say, a shareholder group that's just interested in, let's say, Tesla or other single stocks? I gotta say, I've been pleasantly surprised that this particular category has really hit a note with Traders and investors.

I totally agree. It's impressive. If we stop and just ask ourselves, why, why is this happening? There's really two categories within the single stock. I broke it down for you here, but we can see there's $27 billion. 18 billion of that, 18.2 is in leverage inverse stocks. If you look at the lever, it's dominantly 11 to 1 lever over inverse, and then if you look at the other side of it, it's the synthetic income writing covered calls on a single stock to generate high levels of income on very, very volatile stocks.

First and foremost, the strategies, the stocks that have gotten the most growth tend to be those with the most volatility, the tech tech focused sectors. If I open this up, Nvidia, Tesla, micro strategy, these are huge, billion dollar single stock ETFs. The rationale is not hard for me to get into. If you're an individual investor and you want to trade leverage on names, it's very risky. I'll tell you, there's not very many winners over the Long Haul, but if you're looking for that exposure, traditionally you'd have to get a margin account, and you'd have to do this either through Futures Market or through some sort of Leverage at your brokerage account, then that comes with a whole level of margin calls, this that and the other, and sleepless nights.

If you do it through the ETF, you know, you are getting a single exposure. You buy 100,000 shares of this or $100,000 worth of one of these single stock ETFs, you know, it may go down 60% in day, gets you two times the the exposure of something that has a horrible day like micro strategy as an example, just to give you a sense of how crazy this can become. This is the return of micro strategy leverage versus micro strategy, right? So you can just see how quickly it goes, right?

Out of the gates, it got up to 96%, and then, you know, it's come back down to life relative, but still over the long course. Now, what I'll tell you, if you look at flows in this, you can see that almost all the flows into this strategy came at the height when it was up 900%. So a lot of the people that bought into this bought in late. Not everybody is sitting on a big pile of money just because the strategy's up so much.

In general, there is definitely an appetite for the space, right? We can see it big. If you look at the growth grow of this space is pretty impressive over the last couple of years at that at 26 billion. I get it, it provides transparency. I just remind the audience that these things are, they're designed to be used for short-term trades. They're not designed to be used as like buy and forget it.

If you look at the flows in the space, it's active, but it's predominantly on the inflow side so far, and we're not seen a lot of people taking their gains, and long term, I'm not sure we will hit bouts of volatility, and the names that are being levered tend to be the more volatile names because provides the most bang for your buck, right? There's there's more excitement there. I don't want to call it gamification, but there is a little bit of that gambling aspect to what's going on with these single stock ETFs.

You also have the flip side of the trade, which is the inverse. You know, for example, companies like Direction offer inverse versions of these same single stock ETFs. So those of the the investment audience or traders that want to play that side of the market, they can, whether that's hedging an existing position. I guess that's another use case for these types of ETFs. If you have a huge position on the long side in a in a Tesla or Nvidia, maybe you're trying to protect some or all of that.

I guess you could use an inverse single stock ETF attached to that same stock to offset any potential losses. This is the market share of levered versus inverse single single stock. Wow, 96% are in the levered vehicles out of that $18 billion. 4.3% are in the inverse. That's pretty contrarian right there.

I don't know that I would step in front of that freight train, but it's it's definitely very contrarian when you think about it. I've always said that with these products, any sort of Leverage product, you want first of all a market, whatever you're trading in, whatever direction it is, especially if you're using leverage, that market has to be trending strongly in the same direction that you're trading in before I would even touch it. So that's you definitely have to make sure that that's the kind of condition you're in before you would touch that. Again, that's not to say the trend can't suddenly change on you, but it's certainly I think a step in the right direction if you're trading this.

Mike, great stuff. I really am appreciative that you are showcasing some of the trends that you see in the ETF Marketplace. Again, if you just want to mention to our audience a little bit more about ETF action and how they could take advantage of this excellent tool that you've shown us.

Appreciate time, Dr. Ron, always love talking ETF markets with you. For your audience, if you're looking for a resource out there now, ETF action serves a number of different communities. We have a number of different ways to interact with our platform. First and foremost, for your audience, you can interact with it free.

If you go to ETF action.com, play around our dashboards for free, but if you want create an account. If you were to come out to ETF action, create a free account, no credit card required, and we give away a numerous amount of data and tools. Our more, we have a number of subscription packages you can take advantage of if you're looking for our premium data sets that we license from FactSet. Mostly as a firm, we work with the institutional Community, building out model marketplaces, building out showcase channels for issuers in the marketplace.

On a broader base, we have a large community of financial advisors, do-it-yourself investors that are taking advantage of our tools really to navigate the marketplace. A big part of using the ETF Marketplace places being able to efficiently navigate to the right channels that align with your macro assumptions. To me, I've been in this game now for 20 years. I've led a large size ETF issuers group for a number of years, and part of launching ETF action is I think of the markets through the lens of ETFs because they are so incredibly efficient, and I hope that your audience will think the same way, and maybe they can use our platform to help them along with that journey 100%.

Well, we appreciate having you on. For those you watching, again, go to ETF action.com. You can also hit the description section below this video for links to that, and Mike, keep up the good work, and we'll see you soon. Awesome, Ron, thanks for having me today.

Hope you enjoyed today's episode. Hit the comment section below, and those of you that are more data focused, I think you certainly appreciate what we shared with you on today's episode. So again, thanks for watching. I'm Ronda Leege with ETF Guide TV. We'll see you on the next episode.